LG posts Q2 loss in handset unit as sales drop

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LG Electronics reported an operating loss in its handset business in the second quarter amid higher marketing costs and lower sales. However, the company is hopeful it can produce better results in the second half of the year. 

Click here for a larger version of this slide on LG's performance in the second quarter.

Overall, the company, which also makes everything from refrigerators to TVs, reported a net profit of $138 million, up 47 percent year-over-year, which trailed analysts' estimates, according to Bloomberg. Total company sales were down 10.6 percent year-over-year.

LG said that its mobile communications business--which is dominated by its cell phone business but also houses its network operations--reported sales that were down 28.5 percent year-over-year to $1.99 billion. The division also posted an operating loss of $49.6 million. The handset unit reported similar results. LG's handset unit had posted profits in the past two quarters, but it had been in the red since the second quarter of 2010 before that.

The company has been trying to fight back in the handset market by pushing its Optimus line of high-end Android phones using LTE. However, LG is getting squeezed as feature phone sales decline. The company is being hit at the low end of the smartphone market by Chinese rivals Huawei and ZTE and at the high end of the market by Apple (NASDAQ:AAPL) and Samsung Electronics.

LG said it shipped 13.1 million handsets in the quarter, down from 24.8 million in the year-ago period and 13.7 million in the first quarter of 2012. The company said that despite the decline in sales, especially in feature phones, smartphones are making up a larger share of its total handset sales. Indeed, LG said that smartphone shipments rose to 44 percent of unit sales, up from 36 percent in the previous quarter. Looking ahead, LG said it will continuously launch new LTE models in developed markets and increase revenue with marketing efforts and efficient supply chain management.

"It's true that we focused heavily on high-end phones in the first half, but we will also increase our focus on mass products," LG CFO David Jung said, according to the Wall Street Journal, adding he is cautiously optimistic the company's handset unit will post "not so bad" earnings in the third and fourth quarters.

"The second half will be an important turning point for our product competitiveness," he said, according to Bloomberg.

For more:
- see this release
- see this Bloomberg article
- see this WSJ article (sub. req.)

Special Report: Wireless in the second quarter of 2012

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